The spot gold price tumbled US$21.30 on Friday to US1168 an ounce, and it's taking our gold miners with it today.
Oceanagold Corporation (ASX: OGC) has crashed down 13%, closely followed by Northern Star Resources Ltd (ASX: NST) down 12.8%, Evolution FPO (ASX: EVN) 10.3%, Silver Lake Resources Limited (ASX: SLR) 9.8% and Medusa Mining Limited (ASX: MML) 9.2%.
Australia's largest gold miner, Newcrest Mining Limited (ASX: NCM) hasn't been spared the carnage, losing 5.8% to trade at $9.74, while Kingsgate Consolidated Limited (ASX: KCN) is down 7.1% and Beadell Resources Ltd (ASX: BDR) a more palatable 2.5% to 19.5 cents.
It seems the falling gold price has been blamed on the collapse in oil prices. Lower oil prices are expected to contribute to deflation, reducing gold's appeal as an inflation hedge.
Oil prices have slumped by more than 30% in the past few months, accelerating in recent weeks as large oil producing countries decided not to cut back on production, to reduce supply and prompt a rise in the oil price.
Even the Australian dollar's fall to US 84.5 cents hasn't been enough to temper the selloff in Australian gold mining stocks. The equivalent gold price in Aussie dollar terms is A$1,382 an ounce, suggesting that even at today's prices, many will still be making decent profits.
Of course the market is forward looking and suspects that the gold price is likely to trend lower over time, suggesting times aren't about to get easier for gold miners in 2015.
With the US economic recovery underway, the US dollar is strengthening, which could put more downward pressure on gold prices and therefore the gold miners' share prices.
But many miners have already implemented hedging programs to protect the price they receive for gold, and the falling Aussie dollar certainly helps. They've also wised up in the past year or so, and rather than totally focusing on growing production, have been concentrating on cost cutting and mining their higher grade ores, which helps to lower production costs per ounce.
But with the potential for gold prices to fall further, they may have much more work to do, and are unlikely to see a substantial recovery in the year ahead.
As a result, I can't see any reason why anyone would want to invest in them, when there are plenty of other, better opportunities out there.
